In this wide-ranging, slightly contemplative diary entry, JB muses on the implications of coronavirus on fund board engagement, explores the existential by asking if anyone knows what an investor wants, and ends on a very intriguing note by opening the door to a discussion on the need for an assessment of value for investment advice…
How are you? Any sniffles, coughs?
Having put the petri dish of Assessment of Value (AoV) disclosures under the microscope last month, and I was not alone, I humbly self-quarantine myself to share some broader musings from iNED land. I seize the opportunity for respite and some lie-back-on-the-couch cathartic sharing, being midway through a 100-page fund board pack, taking a wee break to update this entry.
Bunkered in Beckett Towers away from the inevitable onset of coronavirus, and the significant onset of fear and hysteria in markets, there is little doubt that there will be economic and investment consequences now and to come. Our increased interconnectedness makes us collectively less resilient to unwanted surprises like COVID-19. Like most iNEDs, we will be digesting the primary and secondary effects of the coronavirus outbreak and its global macro effects on sentiment, companies, supply chains, earnings and ultimately investment portfolios. Thankfully it looks likely that it will prove less final than ‘The Andromeda Strain’ (1971).
Nonetheless, even if contained, the outbreak will also have subtle effects such as a likely impact on Boards and committee attendance. It will also impinge research trips, fund manager roadshows and conferences. More meetings will be conducted remotely, fewer prepared to congregate in large centres, greater focus will be put on digital information. Just as it will take China time to get back to normal; then so to for our industry and it really needs to, as we hurtle towards a hard Brexit and post a number of FCA letters.
Safe then, back in my bunker, you will catch me spinning a few virtual plates: Assessment of Value calls and meetings obviously, quarterly investment advisory board, fund governance frameworks, external manager oversight, a state of the nation report for a NGO, quick but unsatisfactory sniff test of a Green Bond, the usual myriad of articles from Water investment to the frontier of Alternatives. I even guested a NED column into Investment Week this month, proudly waving the Fund Boards Council (FBC) standard (Ed: for which you have our eternal thanks, JB!)
I’m also preparing for a talk entitled (not by me) ‘What the Investor wants?’ assuming the London event goes ahead later this month. Asset management continually asks the seemingly impossible question: what does the investor want? The very notion of a typical investor itself defies description; yet as an industry we have herded millions of investors into increasingly standardised products, indices and solutions. For a time, all was well. Yet in only 10 years, social media and the ‘digital self’ has altered ‘Maslow’s Hierarchy of Needs’ when it comes to investors, digital selves driving new preferences like:
- Information: Transparency, simplicity and giving of consent
- Immediacy: Redemption, access, liquidity
- Cost: The rise of indexation and the low-cost wave
- Efficiency: That amorphous Value question
- Ethical: The rise of investor conscience and sustainability
- Equity: The sense of fairness of wealth division, tax and contribution to society
- Risk: To deliver needs with minimal surprises
- Individuality: Unfolding the pooled fund industry into specific needs
- Proximity: Changing proximity and direct client control over investments
- Digital: Convenience and de-humanisation of point of contact
I don’t hope to answer “what the investor wants’ here dearest diary but hopefully I might have something resembling an answer come my talk.
Back to that (cough) easier question. Market volatility. For my investment committees, attention has turned to whether falling markets present continuing risk or opportunity. Most asset allocation models; until the virus break out, had been adding risk, primarily through equities and global credit. I am left concerned that both the levels of indebtedness globally, the previous high stock markets in the US, the effects of the virus will culminate in a flight to safety. It is not my job to forecast or decide the final allocation but I am there to challenge bullish colleagues as to the risk contagion.
Meanwhile FBC has been expanding the ‘iNED’ conversation into pension land, investment trusts and other domiciles. The reality of out-of-scope or in-scope activities, within the UK, creates cracks in investor protection. As the number of Master Trusts look set to rise, it raises questions about the quality of governance within insurance companies. As an independent member of an insurance advisory committee I am firm believer of transparency and governance. As Brexit increasingly heads towards regulatory divergence, with the EU, then we will need greater focus on domestic standards to ensure a direction of travel that benefits investors.
Meanwhile my mucker Mark Polson at the research consultancy Lang Cat has cast the value question towards the adviser community; transparency of costs and improved governance in Centralised Investment Propositions took a step closer. Mark’s views are always welcome because they are also accompanied with some form of musical education, frequently of the Nordic death metal variety. Surely the soundtrack of the apocalypse. As we see iNEDs join advisory firms, investment consultancies and research agencies then those dark fiduciary clouds seem to be closing in.
These pose difficult questions for firms. What the Assessment of Value might at least expose are those zombie firms that have shuffled along for years without clear purpose or customer outcome. For them the world is about to end as they know it, goes the REM song. Until the next time (hopefully).
‘It’s the end of the world as we know it. It’s time I had some time alone. And I feel fine’
JB Beckett, FBC iNED Member
iNED, Author ‘New Fund Order’
In his monthly column, Diary of an iNED, JB records his experiences on the boards of two very different organisations as he navigates the highs and lows of a plural career at a time when the fund industry is beset with challenges and opportunities in equal measure.
JB can be contacted at firstname.lastname@example.org.